The purchases journal is used to record only purchases made on credit.
When compound interest is used, interest accumulates less quickly than when simple
interest is used.
When a partner invests a noncash asset into the partnership, the partner’s Capital
account is debited and an asset account is credited.
Cash is a nominal account.
It is in the best interests of a company to base executive compensation on multiple
performance measures.
Inventory methods such as LIFO and FIFO deal more with cost flow than with goods
flow.
An effective system of internal control requires that individuals take periodic vacations.
Due care means carrying out one’s professional responsibilities with competence and
diligence.
Independence means subordinating personal gain to service and the public trust.
The payables turnover is the number of times, on average, that a company pays its
accounts payable in an accounting period.
For reporting purposes, the personal assets and debts of a business owner should be
combined with the assets and debts of the business.
Under a capital lease, each monthly payment is debited by the lessee to Rent Expense.
Admission of a new partner never has an impact on net income.
A contra account is an account whose balance is subtracted from an associated account
in the financial statements.
Dividends in arrears are disclosed as liabilities of a corporation.
The debt to equity ratio is a measure of financial leverage.
The division of income is one area in which a partnership differs from a corporation.
Liabilities generally arise from expected future transactions.
Financial leverage refers to the issuance of stock to raise cash.
The general ledger is the basic storage unit for accounting data and is used to
accumulate
amounts from similar transactions.
The obligation to provide services to another entity is a type of liability.
Stockholders elect the board of directors who then appoint the officers of a corporation.
If a U.S. company purchases goods from a British supplier for a fixed number of U.S.
dollars, an exchange gain or loss would not arise for the U.S. company, even if the
exchange rate has changed between the time of purchase and the time of payment.
Financial statements may be prepared from an adjusted trial balance.
Bonding provides a guarantee against theft.
The total of the balances in the subsidiary ledger accounts equals the balance in the
corresponding controlling account.
Supply-chain management helps companies maintain lower levels of inventory.
A stock dividend exceeding 20 to 25 percent is properly treated as a stock split.
The date on a statement of stockholders’ equity is for a specific point in time.
The amount in the petty cash fund plus the sum of the petty cash vouchers should at all
times equal the amount shown in the Petty Cash account.
A system of internal control cannot be considered good until the possibility of human
error has been completely eliminated.
Compensation expense related to employee stock options is a tax-deductible expense
for the corporation.
Upon making a credit card sale, a business should record the sale as an accounts
receivable until the customer pays his or her credit card bill.
Closing entries will
A. decrease the owner’s Capital balance.
B. either increase or decrease the owner’s Capital balance.
C. increase the owner’s Capital balance.
D. not affect the owner’s Capital balance.
When a direct cause-and-effect relationship cannot be established between revenues and
costs, the costs are
A. not expensed and remain as assets on the balance sheet.
B. expensed among the accounting periods that benefit from the costs.
C. expensed immediately in their entirety.
D. expensed equally each year.
A __________ is an association of two or more entities for the purpose of achieving a
specific goal, such as the manufacture of a product in a new market.
A. Limited partnership.
B. Limited liability company.
C. S corporation.
D. Joint venture.
Copper Company engaged in the following transactions during April
What is the amount of cash still to be collected?
A. $126,000
B. $341,000
C. $144,000
D. $18,000
Connie and Marcos are partners who share profits and losses in a ratio of 3:2,
respectively, and have the following capital balances on September 30, 20×5:
The partners agree to admit Trevor to the partnership. Calculate the capital balances of
each partner after the admission of Trevor, assuming that bonuses are recorded when
appropriate for each of the following assumptions:
a. Trevor pays Connie $50,000 for 50 percent of her interest
b. Trevor invests $50,000 for a one-fourth interest in the partnership
c. Trevor invests $50,000 for a 30 percent interest in the partnership
d. Trevor invests $50,000 for a 20 percent interest in the partnership
A bond indenture is
A. a bond that is secured by specific assets of the issuing corporation.
B. the agreement between the issuing corporation and the bondholders.
C. a bond that is unsecured.
D. a bond that has past due interest payments.
A business accepts a 9 percent, $50,000 note due in 120 days. Assuming simple interest,
how much (amount rounded) will the business receive when the note falls due?
A. $50,000
B. $50,150
C. $51,480
D. $54,520
A company issued $300,000 of 20-year, 8 percent bonds at 96. If interest is paid
semiannually, the entry to record the amount of bond interest expense recorded
(assuming the straight-line method of amortization) on any interest date is:
A. Bond Interest Expense 12,000
Cash 12,000
B. Bond Interest Expense 24,300
Unamortized Bond
Discount 300
Cash 24000
C. Bond Interest Expense 23,700
Cash 23,700
D. Bond Interest Expense 12,300
All of the following can be employee payroll withholdings except
A. state income taxes.
B. medical insurance premium payments.
C. charitable contributions.
D. federal unemployment tax.
Kent Corporation holds 1,900 shares of Russell Corporation common stock as its sole
long-term investment. Kent does not have significant influence or control over Russell.
The stock was purchased during 2013 at a price of $120 per share. On December 31,
2013, the market price of Russell’s stock was $108 per share. On December 31, 2014,
the market price of Russell’s stock was $136 per share. What should be reported as the
carrying value of the investment on Kent’s December 31, 2013, and December 31,
2014, balance sheets, respectively?
A. $228,000; $228,000
B. $205,200; $228,000
C. $205,200; $205,200
D. $205,200; $258,400
On January 2, 20×5, Fresh Inc. issued 20-year bonds payable with a face value of
$1,000,000 and a face interest rate of 10 percent. The bonds were issued to yield a
market interest rate of 9 percent. Interest is payable semi-annually on January 1 and
July 1. In calculating the present value of the bond issue of January 2, 20×5, the
periodic interest payments to be used are
A. $100,000
B. $50,000
C. $90,000
D. $45,000
Use this information to answer the following question.
A periodic inventory system is used.
Cost of goods sold under the average-cost method is
A. $444.
B. $333.
C. $435.
D. $222.
Which pair of accounts follows the rules of debit and credit in the opposite manner?
A. Prepaid Insurance and Withdrawals
B. Advertising Expense and Land
C. Withdrawals and Service Revenue
D. Interest Payable and Owner’s Capital
A controlling investment is defined as owning what percent of the stock of another
company?
A. More than 50 percent
B. 100 percent
C. More than 75 percent
D. 75 percent
Which of the following documents is prepared by a company’s accounting department?
A. Bank statement
B. Receiving report
C. Check authorization
D. Invoice
Which of the following events does not require a journal entry?
A. Purchase of a one-year insurance policy.
B. Agreement to perform a service at a future date.
C. Payment for a service performed previously.
D. All of these choices.
Following are the financial statements for Flynn Corporation for the year ended
December 31, 20×5. Assume that all balance sheet amounts represent both average and
ending figures.
What is the inventory turnover for this corporation? Round your answer to one decimal
place.
A. 1.2 times
B. 1.6 times
C. 2.4 times
D. 4.0 times
Use this information to answer the following question.
A periodic inventory system is used.
Cost of goods sold under FIFO is
A. $429.
B. $426.
C. $452.
D. $237.
Calculate answers to the following scenarios using present value tables:
a. If $100 is deposited into an account paying 8 percent simple interest, what will be the
value of the account in 5 years?
b. If an accumulation of $8,000 is desired at the end of 4 years, what amount must be
deposited now to accomplish that goal, assuming 12 percent interest compounded
annually?
c. What is the present value of $300 received at the end of each year for 4 years,
assuming 9 percent interest compounded annually?
d. What amount must be deposited at the bank today to grow to $10,000 in 5 years,
assuming 14 percent interest compounded semiannually?
Interest coverage ratio is a measure of
A. financial leverage.
B. income after taxes and interest divided by interest expense.
C. stockholders’ control.
D. protection from default on interest.
The most common type of long-term debt is a
A. note payable.
B. bond payable.
C. mortgage payable.
D. pension.
Which of the following does not represent a liability?
A. An obligation for estimated income taxes payable
B. Interest that has accrued on a bank loan
C. An obligation to pay for goods purchased, payable one year after purchase
D. An obligation for future purchases of goods
A company’s ability to attract and hold investment capital ultimately depends on its
A. budgeting.
B. planning.
C. liquidity.
D. profitability.
When an asset is sold, a gain is calculated as the difference between
A. sale price and the depreciable cost of the asset sold.
B. sale price and the carrying value of the asset sold.
C. carrying value and the residual value of the asset sold.
D. sale price and the original cost of the asset sold.
Identify (by code letter) each of the following characteristics as being an advantage of
(A), a disadvantage of (D), or not applicable to (N) the corporate form of business.
The general ledger account for Accounts Receivable shows a debit balance of $50,000.
Allowance for Uncollectible Accounts has a credit balance of $3,000. Net sales for the
year were $500,000. In the past, 3 percent of sales have proved uncollectible, and an
aging of accounts receivable resulted in an estimate of $20,000 of uncollectible
accounts receivable.
Using the accounts receivable aging method, the entry to record Uncollectible Accounts
Expense would be:
A. Uncollectible Accounts Expense 21,500
Allowance for Uncollectible Accounts 21,500
B. Uncollectible Accounts Expense 17,000
Allowance for Uncollectible Accounts 17,000
C. Allowance for Uncollectible Accounts 20,000
Uncollectible Accounts Expense 20,000
D. Allowance for Uncollectible Accounts 23,000
Net income
A. is accumulated in Owner’s Capital.
B. is reported on the income statement.
C. occurs when revenues exceed expenses.
D. All of these choices.
An amount for owner’s Capital would not appear in which of the following work sheet
columns?
A. Income Statement
B. Balance Sheet
C. Trial Balance
D. Adjusted Trial Balance
The financial statements of nonpublic companies are not required to be audited by an
independent CPA.
The trial balance for Parker Company is as follows:
If the trial balance showed a balance of $16,000 in the Wages Expense account and a
balance of $86,000 in the Advertising Fees Earned account, what would be the amount of
A?
A. $126,000
B. $106,000
C. $136,000
D. $116,000
The primary purpose of the trial balance is to test the
A. recording of transactions.
B. analysis of transactions.
C. equality of debit and credit balances in the ledger.
D. equality of debit and credit balances in the journal.
Which of the following is not an example of egregious financial reporting frauds as
discussed in the text?
A. Keeping the books open for a few days after the end of the reporting period.
B. Transferring assets to an affiliate at more than their actual value.
C. Recording as assets expenditures that should have been classfied as expenses.
D. Recording a liability when title to merchandise passes to the purchaser.
Which of the following situations is not an example of a deferral?
A. Recording supplies consumed.
B. Recording unrecorded, earned revenues.
C. Recording depreciation.
D. Recording the portion of prepaid rent that has expired.
The group of users of accounting information charged with achieving the goals of the
business is its
A. auditors.
B. creditors.
C. managers.
D. investors.
Brady Systems entered into the transactions listed below. In the journal provided,
prepare Brady’s journal entries, assuming use of the periodic inventory system. Omit
explanations.
Using the journal provided, enter the following transactions for Morretti Corporation
for 2013 and 2014.
Describe at least 3 ways the sales journal saves time.
Does the existence of conglomerates make financial performance evaluation easier or
more difficult? Why?
What commitments must a company account for in determining its free cash flow?
Explain the two methods used to estimate uncollectible accounts.
Danielle Corporation is authorized to issue 100,000 shares of $5 stated value common
stock and 2,000 shares of $100 par value, 8 percent preferred stock. Prepare entries in
journal form without explanations to record the following transactions:
Given the following ledger account and postings, complete the Balance column.
The income statement account balances on December 31, 20×5, for Janice Company
appear below. In addition, beginning merchandise inventory was $3,000 and ending
merchandise inventory was $4,000. Prepare a 20×5 income statement for the company.
Prepare in proper form the stockholders’ equity section of the balance sheet from the
following selected accounts and balances taken from the adjusted trial balance of
Barger Corporation as of December 31, 20×5.
Financial statements for Crane Corporation are presented below.
Note: Dividends of $0.60 per share were declared and paid during 20×5. The market price
of the stock on December 31, 20×5 was $18.00 per share.
Compute the following for 20×5 and place your answers in the spaces provided. Round
answers to two decimal places. Show your work.
From the following data, calculate the amount of gross margin and gross purchases.
Under what circumstances will a loss be recorded on the sale of equipment, and what
effect will the loss have on stockholders’ equity?
Buckhorn Corporation has 200,000 shares of $10 stated value no-par common stock
authorized, and 160,000 shares were outstanding during 20×5. The following
transactions relate to cash dividends of Buckhorn Corporation for the year ended
December 31, 20×5. Prepare entries in journal form without explanations to record the
following transactions:
